End game for Virgin Blue stake

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Like a child in a custody fight, Virgin Blue awaits the outcome of a hostile takeover bid against its majority owner, Patrick Corporation.

The drawn-out battle of Toll Holdings to buy Patrick has entered its final phase, with Patrick’s Board unanimously accepting Toll’s revised bid.

The Toll-Patrick takeover battle was the largest in recent Australian history. It has see-sawed back and forth since last August. Toll revised its offer in March to overcome competition concerns.

Since then, Toll has revised its deal with Richard Branson over what will happen to Patrick’s 62% stake in Virgin Blue if Toll’s takeover succeeds. Previously, Toll and Branson had agreed that Branson’s Virgin Group, which already owns 25%, would pick up enough additional shares to make it Virgin Blue’s largest shareholder. Some of Patrick shares then would be sold publicly, and Toll would keep about 20%.

Toll and Branson have now abandoned this plan and agreed instead to agree later on how to divide up the Patrick holding. Several things caused this change. Foremost, Toll wanted to simplify its bid for Patrick. Moreover, the value of Virgin Blue’s shares has climbed 35% since this battle started. Toll and Branson seem reluctant to lock themselves into a formula without knowing its price.

How closely Toll and Branson’s interests coincide is unclear. Branson says he only wants a large enough stake in Virgin Blue “to take a more active role in its strategic direction”.

Conversely, Toll’s chief executive Paul Little says Toll is interested in Virgin Blue only as a way to promote air cargo, and does not need a major stake to do that.

Finally, both Branson and Toll both want more liquidity in Virgin Blue’s shares. At present, less than 20% are publicly traded. More of Patrick’s shares will need to be sold to boost that.

Chief executive Brett Godfrey has avoided taking sides by insisting that he will continue to manage the airline regardless of who controls it. ■